Answer to Question #318161 in Marketing for dhruv

Question

Your client had avoided investing in equities for his long term goals. He found equity investments too risky and did not understand when to time his entry and exit in the market. Explain some investment techniques that help negating the biases involved in investing. 

Answer 1

To overcome the anchoring bias, you should practice critical thinking; this means not relying on or basing your investment decisions on the first information that is available. Instead, take time to conduct thorough research and try to find out any negative points about a fund or product. The loss aversion or endowment effect can lead to poor and irrational investment decisions, whereby investors refuse to sell loss-making investments in the hope of making their money back. The loss-aversion tendency breaks one of the cardinal rules of economics; the measurement of opportunity cost.